As e-commerce activity continues to surge, retailers are forced to keep up with consumer demand by growing their sprawling networks of warehouses, fulfillment centers and last-mile logistics facilities to deliver the goods.
E-commerce remains the fastest-growing retail category, rising 14.3 percent from 2015 and well above the 4.1 percent growth rate in overall retail sales in 2016, according to CBRE.
And as the holiday season arrives, accompanied by a veritable tidal wave of e-commerce activity, retailers and logistics companies alike are strategizing for ways to better prepare for the deluge of deliveries and returns to come. “UPS is expected to handle more than 700 million packages between Thanksgiving and December 31, beating last year’s all-time high by 14%,” CBRE notes.
While behemoths like Amazon are opening new distribution centers at a breakneck pace, some larger retailers like Wal-Mart and Target are also running to catch up with new warehouses and space – a trend driving industrial vacancies to all-time lows. However, smaller retailers are ill-equipped to directly compete with the expansive delivery networks of these giants. Instead, they’re brainstorming new ways to approach fulfillment and maintain their competitive advantage.
Growing in popularity are alternative options such as BOPIS (Buy Online, Pick up In Store) and BORIS (Buy Online, Return In Store). In fact, year over year data from a study by JDA Software Group, Inc. showed “a steady 44 percent increase in convenient buy online pickup in store (BOPIS) adoption since 2015.”
“In the future, we foresee some stores evolving into distribution centers, fulfilling 100 percent of customer demand, while others will morph into showrooms with centralized fulfillment,” said Jim Prewitt, vice president, retail industry strategy, JDA Software Group.
Last year, online retailers “raced to fulfill last-minute orders as late as 9:45 p.m. on Christmas Eve in some markets” according to CBRE. It’s likely we’ll see the same race to the finish line this season, while other retailers may move up their shipping deadlines to improve fulfillment rates, or encourage shoppers to take advantage of the BOPIS option once traditional shipping deadlines have been reached.
And new technologies present even more possibilities: Nordstrom has found success in partnering with services like UberRUSH to provide same-day delivery in certain cities.
Third-party logistics providers are capitalizing on these trends, as retailers outsource services to companies with the existing fulfillment networks they need to keep pace. UPS Chief Financial Officer Richard Peretz has said the company is building 7.5 million square feet in warehouse space, and has plans for up to 35 million square feet.
And after the holidays are over? UPS has declared January 5 “National Returns Day,” when the shipping provider anticipates it will process 1.3 million packages in a single day.
This is part 3 of a 3-part series on 2017 holiday retail trends (see part 1 and part 2). Subscribe to Market Share so you never miss a post.
